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Written by Melissa Wylie | Edited by Kurt Adams | Updated on June 28, 2022
Small business loans can cover real estate, equipment, payroll or nearly any need. For this guide, we selected the best small business loans that offer transparent rates and repayment terms, maximum loan amounts of at least $150,000, funding within two weeks or less and lenient requirements for personal credit scores and time in business. Learn more about our methodology behind our picks here.
Small business loans help entrepreneurs build, maintain or expand their companies. Getting a business loan for your company doesn’t always require walking into a bank and securing funds — there are also a variety of online small business lenders to consider, which may have easier qualifications and faster applications.
Small businesses account for a significant chunk of American economic activity — the U.S. Small Business Administration (SBA) estimates that there are 32.5 million small businesses across the country. While the nature of each one varies, many hold one major thing in common: the need for business financing.
Women entrepreneurs can apply for business grants or debt financing reserved for women-owned businesses. Women-owned businesses have grown at a faster rate than U.S. businesses overall in recent years, but when women are approved for business loans, the average annual loan size is about 33% less than men.
Capital is available for business owners of color in the form of business grants or loans. Compared to their counterparts, those in historically marginalized communities face more entrepreneurial hurdles related to funding. Organizations and lenders across the U.S. allocate funds to support minority-owned businesses.
There are several resources and funding options for veteran business owners. After leaving the military, many veterans often have trouble transitioning their military training to civilian careers and instead choose to start their own ventures. Business loans for military veterans are among the keys to success.
The application process for small business loans differs depending on the type of business loan you’re seeking. Short-term loans typically have less paperwork than long-term loans, while equipment financing usually doesn’t require as much documentation as a business line of credit. However, it’s still a good idea to have certain documents ready in case they’re requested, in order to improve your chances of approval:
Tracks how much cash your business has on hand at a certain point in time. While a P&L takes into account non-cash costs like depreciation, a cash flow statement allows you to understand how much cash is available for monthly bills.
Describes the nature and scope of your operation, including projected income and expenses. A business plan is a guide for making business decisions and to help potential lenders, partners and investors evaluate your potential.
The most recent two years of business and personal tax returns, which help lenders verify income, as well as document your ability to repay the loan. Your business accountant can prepare the business and tax documents needed to support your small business loan application and guide you in accounting and tax matters related to your business.
TIME IN BUSINESS
In general, a business that’s been around for a couple of years is more stable than a startup. This is key for lenders, as a business that has a proven track record of revenue over the past two years is a more attractive borrower than a company with spotty revenue over the past six months.
CREDIT SCORE
Your credit score is a data point lenders use to determine your reliability as a borrower. In most cases, you’ll need a credit score in the 600s to qualify for financing, although certain lenders and loan types may allow scores as low as 500.
CASH FLOW
A cash-flow projection shows when money is collected, when cash goes out and what’s left. Lenders typically like to see that the borrower has a thorough understanding of the financial operating cycle of the business.
COLLATERAL
Collateral is an asset that lenders can legally seize if you can’t make payments, including company buildings, equipment and accounts receivable. Some business owners choose to use their personal assets — including their homes — as collateral on a business loan.
DEBT-TO-EQUITY RATIO
Your company’s debt-to-equity (D/E) ratio measures the proportion of your company’s debt divided by shareholders’ equity. This metric helps a lender understand how likely you are to cover new debt based on the debt you’re already paying. While high D/E’s are common in some industries, your goal should be to keep your business’s D/E ratio as low as possible.
WORKING CAPITAL
Your working capital refers to the available money you have to fund your company’s day-to-day operations. You can calculate your working capital by subtracting the business’s debt liabilities due within a year from current assets that you can convert to cash.
LendingTree researchers looked at the number of new business applications filed in each state in May 2022 compared to May 2021. To rank the states, researchers found the percentage change in business applications between the two periods.
Business applications — per 2021-22 data from the U.S. Census Bureau — are defined as all applications for an Employer Identification Number (EIN), except for applications for tax liens, estates and trusts.
Researchers also looked at high-propensity business applications (HBAs), a subset of business applications with a high likelihood of the business transitioning into one with payroll.
Business owners can take out small business loans — generally between $5,000 and $500,000 or more — to finance expenses like payroll, inventory, equipment and other costs. Repayment terms could be as short as three months or as long as 25 years. Both traditional financial institutions and alternative online lenders offer small business loans.
Several types of business loans are available for small business owners, including term loans and business lines of credit for general business expenses. Financing is also available for specific purchases like equipment and commercial real estate. In addition, invoice factoring and accounts receivable financing are available for businesses that collect a high volume of invoices.
Yes, bad credit business loans are available for business owners with personal credit scores as low as 500. However, lenders may assign high interest rates to low-credit borrowers.
A personal guarantee is a common feature of business loans, which requires the business owner to be personally responsible for their company’s debt in case of default. A personal guarantee lowers the risk for a lender, but for the business owner, it may limit any protections your business structure offers.
Online lenders may be the best option for a startup business loan. They typically require only a few months in business, as opposed to brick-and-mortar banks that often have stricter eligibility requirements. Other options for startup capital include crowdsourcing, self-funding or grant funding.
It depends. Each lender will have its own criteria, sometimes varying based upon the loan type. The lowest interest rates are often reserved for applicants with higher credit scores, however. If this doesn’t fit your business, online lenders may be more lenient with credit score requirements.
If your application for a business loan is denied, revisit the reason why. Focus on repairing your credit if your credit score was too low; if you haven’t operated in business long enough, simply wait until you’re eligible. In the meantime, consider a small business credit card to get access to the capital you need.